Analyzing Relative Input Costs
In the early 18th century, the cost of labor relative to the cost of energy was significantly higher in London than in Beijing. This relationship is often expressed as a ratio: (Wage Rate) / (Price of Energy). Deconstruct this ratio to explain two distinct economic conditions that could, independently or in combination, account for the higher value observed in London compared to Beijing.
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Based on the diagram showing the wages of building laborers divided by the cost of 1 million BTUs of energy in several cities during the early 1700s, which statement is correct?
What does the diagram suggest about the economic conditions in England and the Netherlands during the early 1700s?
According to the diagram, how did the cost of labor relative to energy in England and the Netherlands compare to that in China during the early 1700s?
What conclusion can be drawn about the cost of labor relative to energy in Paris and Strasbourg compared to England and the Netherlands during the early 1700s?
Reasons for High Labor-to-Energy Price Ratio in England (Early 1700s)
British Thermal Unit (BTU)
18th Century Technology Adoption
18th-Century Factory Location Decision
The provided chart displays the cost of labor relative to the cost of energy in various cities during the early 1700s. Based on this information, a business owner would have had a greater financial incentive to replace workers with energy-powered machines in Paris than in London.
An entrepreneur in the early 1700s is deciding on a production strategy. The table below shows a simplified index of the cost of labor relative to the cost of energy in three different cities (a higher index means labor is more expensive compared to energy).
City Relative Cost Index London 3.5 Paris 1.8 Beijing 0.2 Match each city with the most economically rational production strategy for that location.
Analyzing Relative Input Costs
Hypothesizing Technological Adoption